AFBF economist: Tight soybean supply will help support price

“We’re not as uptight about a 5 percent stocks-to-use ratio for soybeans as we are for corn. But the soybean situation right now is about as tight as we ever get.”

The market is comfortable living with tighter U.S. soybean supplies because they know there is another major supplier, and that when South America’s beans come in during the middle of the marketing year it will help to smooth out supplies.

While U.S. soybean supplies now are a bit tighter than corn, producers should keep in mind that “the markets are more comfortable with a tight soybean supply than with tight corn supply,” says John Anderson, American Farm Bureau Federation deputy chief economist in Washington.

“The USDA’s ending stocks-to-use ratio of 4.6 percent for soybeans is a really small number,” he said at the annual meeting of the Mississippi Farm Bureau Federation.

“But, we know South America is going to come in at the middle of the soybean marketing year with their production.

“For corn, though, we’re by far the biggest player in that market. China produces a lot, but they export hardly any. We overwhelm any other country in terms of corn production.

“But that’s not the case with soybeans. The South Americans are comparable to us in terms of their export presence. So, the market is comfortable living with tighter U.S. soybean supplies because they know there is another major supplier, and that when South America’s beans come in during the middle of the marketing year it will help to smooth out supplies.

“We’re not as uptight about a 5 percent stocks-to-use ratio for soybeans as we are for corn. But the soybean situation right now is about as tight as we ever get.”

The impact of the Midwest drought on soybean yields this year was not nearly as great as on corn, Anderson says.

“Some key soybean areas got late rains, and there were a lot of surprises in Indiana, Illinois, and Iowa, at how well their soybeans turned out. The beans bounced back and were a lot better than had been expected.

“It’s still a fairly low yield compared to the last five or six years — the lowest we’ve had — and we’re in a little tighter supply situation because of that."

Are export numbers realistic?

To allocate this crop, Anderson asks, "Is it realistic to look at shaving 150 million bushels off domestic crush and keeping exports about even with last?

“If we look at weekly exports so far this year, those numbers aren’t realistic. It’s still early in the marketing year, but the numbers indicate that if we’re going to actually see a slight decline in year-over-year exports, the export number has to drop pretty far, pretty quickly.

“So far, exports have been well above a year ago, with record weekly numbers. That has got to turn down sometime if the downward projection for exports is going to have any resemblance to reality.”

For this soybean marketing year, “We have a very tight supply situation,” Anderson says, “and it will be difficult to allocate the short 2012 crop among all competing uses. This is providing a lot of support for prices.”

The world situation isn’t much different, Anderson says, though it’s not quite as tight.

“World grain stocks have dipped for about the last four years, according to the USDA numbers for wheat and coarse grains (corn, grain sorghum, millet, and milled rice). We’re not as tight as we were in 2006-07, when the commodity markets really took off, but we have drifted lower.

“We’re not to the point that people are panicked about supply. The world corn supply is very tight — we’re bouncing around at about the lowest global stocks-to-use ratio we’ve ever been.

“The reason the market is not as agitated as in 2006-08 is that wheat supplies are better and rice supplies are better. From a food standpoint globally, those are the two most important grains we deal with. Wheat has drifted down the last two or three years and I think we’re not far from the point the market will get sort of agitated about these supply levels.”

Everyone is focusing on this year’s crops, Anderson says. “What is the southern hemisphere crop doing, and what are we going to be able to do in the northern hemisphere for wheat and feed grains?

“We were short this year — we can deal with that, though not painlessly. But if there should be another short crop, there would be some major questions about how we’d handle the situation.

‘The global grains situation is not quite as tight as the U.S. situation, but it has tightened over the last couple of years, and we’re probably only one crop away from the markets really getting antsy about it.

“Market analysts are going to be talking a lot about this over the next few months, particularly as we get into January/February. There will be a lot of discussion and a lot of debate.”